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Building an Ethical Brand in a Transparent Era

By Michael Mendenhall, Julia Taylor Kennedy | September 23, 2011

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JULIA KENNEDY: Welcome to Just Business, a series of interviews on global business ethics.

Today I've taken a field trip to the West Village [in Manhattan]. I'm here at Lipman offices, talking about ethical marketing and branding with Michael Mendenhall, president and chief operating officer at Lipman, which is an advertising agency entering its 85th year in 2012.

Earlier this year, Mendenhall and two partners, one of them David Lipman bought out the rest of the Lipman family.  And they're reshaping the company to move from a traditional ad agency into a more holistic branding consultancy. We'll talk about what that means, and how corporate values and ethics come into play, in this new model.

Mendenhall has quite a track record in global citizenship, as senior vice president and chief marketing officer at HP [Hewlett-Packard]. Mendenhall also spent 17 years at the Walt Disney Company, culminating in a position as executive vice president of marketing and communications of Disney parks and resorts.

He's a member of the World Economic Forum's Global Agenda Council on Marketing and Branding, as well as a variety of other high-powered councils and committees. He has also been recognized as an Internationalist of the Year by Internationalist magazine.

So, Michael Mendenhall, it's a great pleasure to welcome you to Just Business.

MICHAEL MENDENHALL:
Thank you very much. I'm very pleased to be here.

JULIA KENNEDY: So why don't we start with the new Lipman. What's changing about this ad agency that so many people have heard of?

MICHAEL MENDENHALL:
You can well imagine, having spent well over 25 years as a marketer who employed many different types of agencies to help with many of our objectives, whether they were digital branding, social, or the more conventional advertising agencies, that one of the things I noticed that was happening over time—and a lot of it had to do with the sorts of innovations that were coming out of the technical space, certainly Silicon Valley—was the fragmentation of consumers. I started to see that while I was at Disney, and certainly saw it amplified while I was at HP.

That fragmentation was becoming very difficult for marketers, CMOs [Chief Marketing Officers], and advertisers, because how do I find my audience and how do I engage them, and ultimately how do I convert them to sell?

So it became much more complicated, as you started to blend the offline world with the online world. So marketers were starting to struggle with this.

What they did was within their own organizations—they started to create functions that actually mirrored that fragmentation. What I mean by that, is you started to hear about new media groups, digital groups, and/or functions, such as a Social Department, that handled social communications, and that may live within PR.

Or it may live within Marketing. You may have another group that actually handles the corporate communications side of the business. So you began to see these functional silos develop within a company.

At the same time, there was increasing pressure to drive top-line revenue, to drive top-line growth—"Where is my share price and where is my reputation as a company?" All of those things were the things that the top-line top management of the company was focused on.

However, at the same time, as I explained earlier, you have this functional fragmentation going on.

What happened is all of the marketing/branding companies, all the ad agencies, all of the digital companies that support marketing, they also, then, fragmented to mirror the corporate functions.

So what you had was these big holding companies in advertising who would have a digital shop, a branding shop, a social shop, a PR company. They basically said, "Within our portfolio we have tremendous assets, and we can mirror your needs as a marketer."

The problem with that was everything was sort of siloed functionally. So, in essence, they really sort of compete with each other.

There's a lot of gray area between those agencies. And so, what would happen, is the marketers found themselves forcing integration internally, as well as with these marketing partners, these ad agencies, branding companies, digital companies.

Instead of looking outward, where the CEO and the CFO wanted growth, the marketer was looking internally, trying to integrate messages and integrate products, services, and campaigns that were launched against that. For me, it spelled just a bit of a broken system.

The other thing that was interesting, is many of these big advertising holding companies did a fine job of adding assets through inorganic growth, so, through acquisition.

But what they didn't do well was the integration piece. They never really, truly integrated these companies into the holding company. And so you have those silos, even within the holding company structure, of these big advertising agencies.

So, what I wanted to do here at Lipman, is solve this issue, and really have end-to-end capability from business strategy to marketing strategy.  As a consultant, we can help you actually build a business plan, we can go toe-to-toe with the Bain's, McKinsey's, Accenture's, et cetera of the world and actually look at your portfolio. We can look at the growth, we can look at category management, and we can build business plans around that, and then take that into what we consider the strategy of the company and the brand strategy.

We believe the business strategy of a company and the brand strategy really have to be very tightly in line. That alignment becomes critical.

So what we did was, instead of having to go outside to, then, an Interbrand, a Brandz, a Siegel+Gale, et cetera, you can come to Lipman. And we have that capability of building your brand position, your category management, your portfolio, your architecture, your language and identity.

And then, the bigger piece is what a lot of people call channel management and multi-channel strategy. We really believe, here at Lipman, that it needs to be focused on, not the channel, but on the customer.

It's really that customer's journey. That is a really agile journey, where they start with discovering.  Hopefully, at the end, they wind up becoming what we think is important, as an evangelist. At any given point within their journey with you, there is re-contact, there is re-engagement, there are secondary purchases, et cetera. That environment becomes important. Understand that environment and that journey the customer is on. And then we actually overlay the channel.

So really here at Lipman, the new Lipman, we have end-to-end capability. With, as you know, over 75 years of just outstanding, creative talent—and that's what the company was known for—we've added all those capabilities. We really sit as a team, and it's really about a great business marketing/brand consultancy that actually can develop your marketing plans and execute them with you. So we become a true strategic partner, not just a work-for-hire.

JULIA KENNEDY: You've had a busy few months. How exciting is it to be at a place like this, and in a position like this, where you really have total control over the direction of the agency, or a great piece of the control? I know you have partners.

MICHAEL MENDENHALL:
I think what was exciting, is certainly Mark was really great at delegating. That was Mark Hurd, who was the CEO of Hewlett-Packard. The leadership and operational training that I learned while working for him was amazing.

It certainly set me up to run something much smaller in scale, but one that we could build the culture of the agency, and really treat it almost like a startup in Silicon Valley, which has been quite exciting, and a very different type of working environment as well.

JULIA KENNEDY: Let's talk about the global citizenship piece. Changing tacks a little bit, you did a lot of that while you were at HP and actually worked with the Carnegie Council on some of your initiatives. Tell me why being a good global citizen or an ethical global citizen is important to you.

MICHAEL MENDENHALL:
I think it has always been important to companies, but it has become more important.

That being that, again, if you go back, and you begin to look at the evolution of the Internet and the evolution of social on the Internet, at one point it was really about word of mouth. Word of mouth relative to how a company treated its people, treated its suppliers, treated all those key stakeholders—its customers, its work force—was really communicated and found out about via word of mouth. That was only scaled by physical and geographical location. So, not everything was as transparent.

I think, today, with the advent of the Internet and the advent of scaling word of mouth, using social media and the social applications that exist, ultimately there is complete transparency for companies and brands.

It scales beyond just the physical capability of a person to a person. So, what has happened is that amplification of word of mouth has scaled globally.  There really are no geographic borders anymore, there are no industry borders anymore. And so, ultimately, it becomes incredibly important for companies to be completely transparent.

I think there are four key trends that we see today:

  • Mobility—you're always on, always connected.
  • Personalization and customization, the idea of "know me and be relevant to me."
  • Third, being social and community, this idea of this amplification, this connectivity. We're more connected now than we ever were. You know, it's not six degrees of separation anymore. As we know it, mass communication has changed from one to many, to the idea of one-to-one, many-to-many, and many-to-one. So this idea that any bit of news travels so fast and scales so quickly.
  • Then, the last trend being global citizenship. And this, being everything about your governance and your ethics, about your labor and human rights, your sustainability as being a part of that, your impact on the world today. All of that social space now has been amplified, and becomes incredibly important to the health of a brand.

We also have seen that it's important to today's generation, but becomes more important as we move through the younger generations. And so today, you had better be planning, and you had better have what is a very good plan around global citizenship. This idea that you need to be in the global space, you need to be in the community space, is incredibly important. And your actions now are going to be very visible.

We know that it will become a purchase preference for brands moving forward. Today, people will make a preference, but they won't pay more. That absolutely will dissipate, as you get to the younger generations.

And, it will be a given that you have these plans in place. It will be a given that it's a necessity for you to be very transparent about where your company is positioned in global citizenship, relative to those buckets underneath that. So, very important.

It's something that we talk to every one of our clients here at Lipman about, as we move through these four trends, this becoming an important one, because your actions have to match your strategy in this space.

What I mean by that, is you have to treat your suppliers and your employees relative to the claims you're making as a company. A lot of times people will make claims, and they don't have their house completely in order. Today, as transparency is scaled, you need to do that.

JULIA KENNEDY: You've spoken in the past about how markets are growing and changing. Markets are so much more global than they used to be. So you also have to think about citizenship for a different consumer than before. I was wondering if you could talk a little about that.

MICHAEL MENDENHALL:
I think that's a good point. The evolution of this is very different, depending upon the maturation of the markets, and what part of the world you're in. And certainly, everybody is becoming very, very attuned to this, not only the private sector but the public sector.

Look at what's happened in the Middle East this past spring. You're clearly seeing this idea that people are connected more, that social and communities are global now, and that news and information spreads rapidly around the world, and ultimately you have complete transparency.

No matter how you may try to manage that, it becomes incredibly difficult because of all the channels that exist today. Certainly, we've just seen more and more channels added almost every week to this global community, that it becomes very hard—it's hard to hide things today.

We think that it will become very important, even for those emerging markets around the world, to really begin to think about the importance of global citizenship.

They are playing in this very connected world. We are connected from a geopolitical standpoint. We are connected, certainly as we've seen, from a macroeconomic standpoint; very hard to separate these economies and these micro-economies.

So it becomes critical that companies and countries have a plan and a position around global citizenship.

What does that mean in social responsibility? What does it mean in philanthropy? What does it mean in human rights? What's my position about how I treat not only my work force, but what am I requiring of all these suppliers around the world, the idea that procurement is global, that the supply chains are global for many of these companies? All of these things become incredibly important.

If companies don't focus on it, they will be disadvantaged.

JULIA KENNEDY: How do your clients react? Are you telling them something they already knew, and now someone outside is saying it so—

MICHAEL MENDENHALL:
Well, I think certainly more sophisticated clients understand this, they understand the importance of it. I do think the issue becomes many people see this as a mid-to-long-term strategy. And in the near term, they're just trying to make quarters financially—a very risky proposition.

And, so, some understand it, have been on it, and have developed pretty sophisticated programs. Others are very new to it and understand, but say, "Listen, we've got near-term issues."

But they don't realize that the repercussions of a mistake within one of these buckets underneath global citizenship could actually bring down a company and a brand very rapidly.

We really try to emphasize, as a part of our planning to clients, the importance of "you need to have a position in this, you need to be transparent about that position, you need to have accountability about your position relative to global citizenship, and you need to be working on plans. Nobody expects everyone to be perfect today, but you had better have a strategy as to how you're going to get there."

One thing at HP and at Disney was we always had a strategy, so that we could communicate to the world that "Listen, we're not here today, we'll be there in five years. And here are the benchmarks we will meet as we move through those five years," so that there's accountability.

JULIA KENNEDY: You make a very pragmatic case for this. I'm curious if you also are coming at it from, "I was taught these certain values growing up in central Pennsylvania" or—

MICHAEL MENDENHALL:
No. It's values that you learn in any business, relative to the culture, the work force, and the demands by your consumers, the transparency that your consumers and customers want, and that your own work force wants. Certainly, these are important. You can certainly see that very healthy companies have a pretty robust plan around it.

Some people say, "Our company's too big. How could we possibly do that? Our supply chain is endless. How can we take accountability for other people's work forces relative to our own? We can control our own."

What I say is: "No. Actually, you can certainly control your own work force, the governance, the ethics, and the human rights around how you treat your own workers. And you can request that and require it of your suppliers as a part of their agreement with you."

Then, what we did at HP, because we thought, "How are we going to audit all of this; how would we audit our suppliers? We can do random audits, but the supply chain is infinite"—

What we decided, which was very controversial at the time, was: Well, the way around that is, let's have the world hold our suppliers accountable to what we believe is the code of ethics and conduct around human rights, labor, and our ethics and governance, as a company.

So, let's publish what we are holding them accountable to.  And then let's publish our supply chain, publish all the companies, and put it on the Internet. And if there's an issue somewhere, we're going to see it and hear about it. And let everyone be our auditor.

There was some concern about doing that, because it was "Gosh, now our competitors will know who we're working with."

But we felt like the risk on the other side was far greater. So we actually did that. I think it's one of the better decisions that we made in this space at HP.

The other thing was, you have to make sure people understand what your position is as a company, and give complete transparency again to these practices. So we actually treated it separately, even in our annual report. And we actually published an annual report on global citizenship every year. We posted that on line, and we actually printed a separate report.

We actually benchmarked ourselves.  These were the goals we set in all of these areas, and here's what we've met. And here's what we're still working toward.

It improved our standing with NGOs [non-governmental organizations]. It improved our standing with the public sector, with governments, with communities. I do think the benefits far outweigh any kind of risk that you would have in this space.

JULIA KENNEDY: I also wanted to talk to you—and you alluded to this in one of your answers earlier—about the issue of making sure that companies are not greenwashing. You didn't use the word greenwashing. But when you're in the marketing business, that's kind of the "G" word.

MICHAEL MENDENHALL:
I avoided that.

JULIA KENNEDY: So how do you convey to your clients, that that's not why you're in business?

MICHAEL MENDENHALL:
You just can't do it today, because, again, the transparency that exists in the social communities around the world using online capabilities—where information scales to the mainstream press very rapidly, too—you can't do it today.

So, this idea that I'm going to make claims about this space, that aren't authentic to the company, becomes incredibly problematic. That's actually almost worse than saying, "Here's where we're not doing so well, but we're going to improve. And here's our plan to how we're going to get there."

That is a far better strategy, to be up front and transparent about where you are today, and a plan as to where you're going, in this global space. And far better than taking the risk of "I'm going to tell you some things that maybe aren't true."

The consumers, customers, and people and the press, will understand and see that very quickly. I think it's more detrimental to the long-term health of your brand and its equity, as a company, and its reputation.

Which gets me to one of the bigger practices that we need to see—is not just how we build brand equity, but how we look at a brand reputational practice within a company. And how do you begin to look at where those risks are, start to mitigate them, and be transparent about it, versus hiding—trying to hide, at least.

JULIA KENNEDY: I'm wondering about the flip side of that, which is, companies that may not be the best at communicating what they're doing well. Do you run into that and how do you work with them?

MICHAEL MENDENHALL:
That's why they hire us. [Laughter] That's where we can help them, certainly.

You know, communication is not necessarily the best trait, in what we see in many boards and many leaders of many companies. Certainly that's a skill set that you can hire.

It really becomes an important skill set within your company, in your marketing-communication functions of the company, that they're working together.

This idea, at times, that the comms [communications] sits outside of marketing, I think, can be problematic—that you really want to integrate all the touch-points of your key stakeholders around the brand, around the company, and around its reputation. That really needs to be integrated in a better way.

The idea that that can be bifurcated, at times, is problematic, because there's not alignment in the company. I think it's important that the comms practice is taken very seriously as a key strategic partner.  That it is aligned, the marketing and comms functions, so that people managing the brand piece, and the comms piece, are incredibly aligned, if not working for the same person in a company.
And that they become key strategic partners, just like your general counsel would be. Just like your business leaders of your different product lines are.

It is incredibly important, because you've seen the speed of communication. Companies don't own all their own communication now. A lot of the brand is now owned by your customers and your consumers. So you're sharing that relationship. Therefore, you really do need great sophistication on the communications side and alignment.

JULIA KENNEDY: Can you think of a brand that does that sharing with its consumers really well?

MICHAEL MENDENHALL:
Certainly I would say I think Disney does that incredibly well. It is a brand that is always engaging both online and offline in the social communities with its customers and its key stakeholders, whether that be government leaders, community leaders; whether that be consumers, suppliers, analysts, et cetera.

They're very good at managing those communities. They're very transparent, very proactive, and very early on, had a reputation practice at the company, which you commend them for.

I would also say Nike, I believe, does that quite well.

JULIA KENNEDY: That's an evolution.

MICHAEL MENDENHALL:
That was an evolution. So there was a company that actually learned from its history, really kicked itself into gear, and became very focused in this space.

One company has always had a good practice and a brand, being Disney; the other, being a company that has actually learned.

JULIA KENNEDY: It sounds like a lot of these principles you're talking about are pan-sector.

MICHAEL MENDENHALL:
It's every industry. Certainly, I think the banks are certainly learning this, and the insurance community—over the last several years—the importance of this, and the importance of these practices. And certainly learning that, again, it's hard to hide. And therefore, you had better think about this as a company.

I think your idea of brand becomes important to the reputation of the company, but equally important is global citizenship. Those two pieces really make for a healthy company. A lot of sectors have learned this over the course of history.

JULIA KENNEDY: Transparency is here. Global markets are here. What do you think is the next hurdle that companies are going to face? Is it this integration piece?

MICHAEL MENDENHALL:
They still continue to struggle in the integration piece. Things tend to be bucketed functionally. Then, it's about multi-channel, it's about integration, it's about all of this organizational work.

JULIA KENNEDY: Inefficiency is what you're describing.

MICHAEL MENDENHALL:
Inefficiency within that. Therefore you lose effectiveness.

So, you're going to find, over time, companies more focused on organizational development, as it relates to all of these changes. And how do they really organize to build the most efficient operation. You're going to see that the way we're organized today is not going to align with future needs.

JULIA KENNEDY: Michael Mendenhall, it has been wonderful to sit down and pick your brain on these subjects. Thanks so much.

MICHAEL MENDENHALL: Thank you very much for having me. Great fun.

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